Brussels, 24/06/2003 (Agence Europe) - In its evaluation of the revised 2002 updated stability programme of the Netherlands, which covers the period 2001-2007, which it adopted on Tuesday, the European Commission called on the country to take, "additional consolidation measures (which) might be needed to ensure a fiscal position close to balance in the medium term". Overall, the Netherlands complies with the requirements of the Stability and Growth Pact. It complies broadly with the 2003 Broad Economic Policy Guidelines.
On the basis of the Commission recommendation, the Ecofin Council is expected to adopt a formal Opinion on the revised 2002 update of the stability programme of the Netherlands on 15 July 2003. The Commission points out that the original version of the 2002 update was already submitted in December 2002 but not discussed in the Council because of the prolonged government formation after the 22 January 2003 elections.
The Commission conclusions on the stability programme of the Netherlands are the following:
The open economy of the Netherlands was adversely affected by the sharp slowdown in the world economy. Real GDP growth reached 1.3% in 2001 but slowed to no more than 0.2% in 2002. The revised 2002 updated stability programme is based on macro-economic assumptions whereby real GDP growth is expected to recover gradually from ¾% in 2003 to 2½% in 2007. The programme takes into account the substantial consolidation package introduced by the new government for the period 2003-2007. While for 2003 and 2004 the projections are in line with the Commission Spring forecast, but the Commission believes that risks are clearly skewed to the downside.
The general government accounts deteriorated markedly in 2002 to a deficit of 1.2% of GDP, compared to a slight surplus of 0.1% of GDP in 2001. The Commission comments that, "This deterioration was due to a combination of high expenditure growth in some areas and a weakening of revenues, the latter reflecting the combined lagged impact of the economic slowdown and the tax reform". The Commission is worried that despite substantial fiscal consolidation in 2003 and 2004, a close to balance position will only be reached in 2005. The revised 2002 update expects the general government deficit to increase to 1.6% of GDP in 2003 (despite a tight budget), rising slightly further to a deficit of 1.7% of GDP in 2004. In subsequent years, it is expected to improve gradually to improve to 1.2% of GDP in 2005 and 0.8% of GDP in 2006 and 0.5% of GDP in 2007.
The cyclically adjusted deficit is projected to improve from of 1.2% of GDP in 2002 to 0.8% of GDP and 0.7 % of GDP in 2003 and 2004 respectively. It would be reduced further in subsequent years, to 0.3% of GDP in 2005 and 0.2% of GDP 2006 and 2007.
- The debt ratio declined only slightly in 2002 and reached 52.6% of GDP In the 2002-2007 period public debt is expected to remain relatively stable.
The Netherlands "appears to be in a relative good position to meet the budgetary costs associated with ageing", writes the Commission, adding that, additional consolidation measures might be needed to ensure a fiscal position close to balance in the medium term, should economic growth in the medium term slow significantly.